California to borrow internally to raise cash

California Governor Jerry Brown signed a bill on Friday allowing the state government to borrow from internal funds to build up its cash, which the controller earlier this week said was quickly dwindling.

The legislation allows the state to tap up to $865 million, part of a plan crafted by Controller John Chiang, Treasurer Bill Lockyer and the finance department to address the cash shortage.

Chiang earlier this week warned the chairman and vice chairman of the Joint Legislative Budget Committee in a letter that the state would need to come up with more than $3 billion to avoid burning through its cash by March.

The controller said California need not resort to issuing IOUs, as it did during a cash crunch in 2009, or to delaying tax refunds.

Lawmakers quickly responded by approving the bill permitting internal borrowing. Other near-term measures urged by Chiang, Lockyer and the finance department include postponing some payments and external borrowing.

Lockyer's office is working on a plan for a private placement of revenue anticipation notes.